Saturday, August 21, 2010

Working on a paper about the Southern Europe Euro crisis, I came across the data on current account balances in the EU - it's pretty strong stuff, with a clear divide between surplus countries in the North (excepting UK and Ireland) and deficit countries in the South (with France however between the two).

What's especially interesting is that all the surplus countries have relatively low inequality, whilst the deficit nations are more unequal. This says something about the persistence of David Cameron (no not that one)'s argument about welfare states being a necessary adjunct of exporting economies - Cameron's argument was that wage restraint, corporate restructuring, labour mobility and other good things (for competitiveness) are made possible by redistributive policies that provide worker security and legitimize politically the economic risks of openness to trade.

Here's a chart that illustrates the point - high inequality in the mid-2000s is associated with external deficits in 2008:

Thursday, August 19, 2010

It shows beyond any doubt or ambiguity that not only the poor, but also the middle income groups have barely seen any real income gains ever since the 1970s, whilst the richest 1% have been piling up ever greater wealth (data for the US).

According to the classic theory of how democratic elections work (Meltzer and Richard's median voter model), this should be impossible. Democracy should give the median voter the power to elect politicians who will redistribute to income from the very rich to them. This, very obviously, stopped happening in the US thirty years ago, and a very similar picture works for the UK and the other Anglo democracies, as well as for Italy. Other countries have seen a less marked skew in favour of the rich, but serious redistribution has pretty much run into the buffers everywhere.

The great paradox here is that middle and low income voters have tended to support rich candidates in elections in the countries where redistribution is most limited. The Reagans and Bushes in the US, Berlusconi in Italy, and now Cameron in the UK. This is not how democracy was expected to work. Back in the nineteenth century left-wing activists and theorists assumed that full democracy would usher in the confiscation of the great riches of the privileged elite, and the elites themselves feared they would be right, resisting greater democratization where they could. They needn't have bothered.

Of course, we shouldn't assume that voters support anti-redistribution candidates because they are stupid and don't realize what is going on - that's partly true but not the whole story, as the clear evidence of popular discontent (abstention, support for extremist parties) shows. The problem is also the collapse of institutions of collective action and mobilization of the poor and middle: declining trade unions, parties and other organizations. This leaves the poor with no-one much to vote for, and the skill of the conservative forces in pitting the poor against each other (anti-immigration rhetoric and law and order talk is particularly effective) does the rest.

Unless people start to get organized, nothing is going to change. This requires particular conditions, but first of all it requires individuals to see collective action, rather than individual strategies, as the best way of improving their lives.